What do we reckon about.... the recession?

You'll hear the word somewhere, at least one a day. The politicians tell us through the media that it's 'officially' over, and although there are concerns about a 'double dip', don't worry, because as fragile as the recovery is, everything's going to be all right, anytime soon.

It's a big lie, and the top politicians might not even know it. In fairly simple terms, here's why;

Between the 1930's and 1970's, what can loosely be termed as Keynesian economics dominated Government policy. Everything was based on the reality of supply and demand. Most economists agreed that recession was characterised by 'low or no growth' of economies, say 0-1.5% per year. Reasonable growth was considered to be 2% or 3%, with good growth being regarded as perhaps 4% or 5%. The growth figures of 6% to 12% achieved by some Far East countries in the last third of the 20th century was considered exceptional, as was negative growth, which was considered to be a sign of depression, a state worse than recession.

All that changed with the advancement of monetarism in the late 1970's, and its effect on Government policy. Instead of the reality of supply and demand, the leading principle became expectations. Before too long, key stock market prices became expectation-based. So if a large company only made $3billion, instead of the expected $5billion, stock markets would fall. Similarly, if a report on industrial performance was better than anticipated, stock markets would rise. Not too long ago, I remember a report on Sky News, featuring a guy in America, who was closing his car showroom because of the recession. He speculated that General Motors might face some problems soon. Although General Motors made no comment in the media that day, Sky News later reported that the FTSE100 in London finished 1.5% down 'on the news'....

Following the advancement of monetarism, it didn't take the politicians too long to realise that expectations had become everything. Words gradually became of greater importance than actions. So if you talk something up, it might well get better. If you talk something down, it may well get worse. Some people call this 'spin'. And before too long, a new definition of recession was upon us. A recession now only 'officially' exists in an economy if there are three successive quarters of negative growth, and as soon as that's no longer the case, it's 'officially' over, and we can all look to the future.

The definition is of course a load of old tosh. If it were true, the long and deep British recession of the 1970's was barely a recession at all - there was just one case of three successive quarters of negative growth, 1973-4, see http://www.guardian.co.uk/business/interactive/2008/oct/22/creditcrunch-recession, GDP changes since 1955. And yet I lived through the miners' strike, the power cuts, the three-day week, and the 1978 Winter of Discontent....

The new definition of recession of course enables the politicians to talk everything up, which they believe will make things better, faster. If things aren't going well, they can say it's not a recession, because we haven't had three negative growth quarters, or they can say it's 'officially' over, and we're in a fragile recovery, because the latest quarter shows small positive growth. It's not necessarily a bad thing, but it's still a lie, which some people will unfortunately base their decisions on.

So where are we really with the recession? Well, I have a lot of experience over the years in econometric modelling - that's trying to explain things using economic data, and then using the knowledge to try and predict the future. I once worked with the Henley Centre for Forecasting, and I can tell you without doubt that the number one indicator of economic activity is house prices. That may well mean bad news for the American economy for a while longer, since the trend in house prices in America still seems to be down. It's probably worse news for the British economy, which tends to run about two years behind the US....

If you enjoyed reading this, please take a look at my series of sci-fi adventure novels, at http://steven-stone.blogspot.com/.

For further information on my novel 'Intrepid', a top 100 Kindle bestseller in science fiction, military and war, see;
Premise - http://stevestonechat.blogspot.com/2011/06/premise-for-novel-intrepid.html
Review - http://stevestonechat.blogspot.com/2011/06/review-of-novel-intrepid-by-martin-ince.html

For further information on the sequel 'Intrepid - The Two Storms', see;
Premise - http://stevestonechat.blogspot.com/2011/06/premise-for-novel-intrepid-two-storms.html
Review - http://stevestonechat.blogspot.com/2011/06/martin-ince-review-of-novel-intrepid.html

I guess time travel is one sure way to get yourself out of a recession....

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